Jonas Maibom, Aarhus University – University of Copenhagen

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Jonas Maibom, Aarhus University

Assessing Welfare Effects of ALMPs: Combining a Structural Model and Experimental Data

Abstract

The litterature on Active Labour Market Programs have documented the existence of threat (or ex ante) effects associated with future program participation. This implies that program participation is somehow viewed as costly for potential participants. This paper combines data from a randomized experiment with a structural economic model to estimate both the utility costs and programme eects from participation in Active Labour Market Programs. The model generates a link between observed behaviour such as job nding rates into structural parameters such as utility costs, while the experiment generates exogenous variation in the threat of program participation. The estimates of the model are used to calculate the monetary compensation which would make individuals indierent between being treated or not. The model thereby enables an analysis of whether the programmes represent a worthwhile social investment by comparing the employment gains to costs including those borne by the participating individuals. Thereby some empirical quantication of a long lasting discussion in the literature that analyse the optimal design of labour market policies is provided. The estimates of the structural model are exploited to analyse the heterogeneity in the compensating variation in relation to future prospects and the timing of treatment in an environment which is characterized by duration dependence in unemployment and rich heterogeneity across individuals. While the results are preliminary they suggest that traditional Cost-Benet calculations which do not take the individual costs into account largely overstate the gain from having these programmes. The costs are substantial and are important to quantify in order to assess whether the current mix between programmes and UI is optimal.

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Jonas Maibom received his PhD in Economics from Aarhus University and is currently working as an Assistant Professor at Department of Economics and Business Economics, Aarhus University. His main interests lie within labor economics, applied microeconometrics and labor market models.